Bear Stearns Sees Upside In GateHouse Stock Price

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By: E&P Staff

Bear, Stearns & Co. Inc. initiated coverage of community newspaper publisher GateHouse Media Inc. with a “Peer Perform” rating in an industry it rates as likely to underperform the S&P 500 market index.

“Our enthusiasm for GateHouse’s relatively favorable financial profile due to its small market exposure and its high dividend yield is tempered by rich valuation and possible dependence on further acquisitions to support the dividend,” wrote Bear Stearns analyst Alexia Quadrani.

Bear Stearns noted that GateHouse, which trades as GHS on the New York Stock Exchange, is trading at 13 times estimated 2007 EBITDA (earnings before interest, taxes, deductions and amortization), a “healthy premium” to the average multiple of 10.4 for the group of newspaper companies it tracks.

GateHouse’s top-line revenue should “modestly outpace” the overall newspaper ad market because of its focus on smaller markets, which Bear Stearns says is “somewhat more insulated from the secular challenges of the traditional print market.”

Like other firms that have initiated coverage of GateHouse since it went public in late October, Bear Stearns said it likes the chain’s aggressive acquisition strategy — it has spent $500 million snapping up newspaper companies this year — and its commitment to paying a dividend with a yield three times the industry average.

Bear Stearns said its Peer Perform rating “reflects the benefit of strong sponsorship by Fortress, an above average dividend yield and relatively favorable fundamentals given the company’s small market exposure offset by the difficult newspaper ad market, integration risk and premium valuation.”

The firm said it estimates the stock price could increase 10% over current levels in the next year. At the 4 p.m. EST close of trading, GateHouse stock was at $20.13 a share after briefly dipping below $20 for the first time since it shot to more than $22 from an initial offering price of $18 on the first day of trading.

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